WBLCA news – Getting the Deal Through 2015

Posted 5th February 2016.

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Describe the domestic natural gas sector in Malaysia, including the
natural gas production, liquefied natural gas (LNG) storage,
pipeline transportation, distribution, commodity sales and
trading segments and retail sales and usage.
According to Petronas’s Annual Report 2013, Malaysia’s natural gasreserves (2P) at 1 January 2014 were 6.64 bboe, an increase of 6.602 from1 January 2013, while contingent resources (2C) were 10.14 bboe at1 January 2014, an increase of 9.875 bboe from 1 January 2013. The oil and
gas industry, through its upstream and downstream ctivities, is a significant contributor to economic growth.
Based on data on 1 January 2013, Sarawak accounts for approximately52 per cent of the country’s natural gas resources, followed by Peninsular Malaysia with about 36 per cent and Sabah with 13 per cent. Given the rise in global energy demand and economic growth, the contribution from the oil and gas industry is expected to increase by approximately 20 per cent to reach 81.9 billion ringgit or 11.1 per cent of GDP in 2015. Upstream is expected to contribute 43 billion ringgit or 5.8 per cent of GDP, whereas downstream is expected to contribute 39.8 billion ringgit or 5.3 per cent of GDP in 2015. Natural gas has always played a fundamental role in support-ing Malaysia’s economic development and accounted for 46 per cent of Malaysia’s energy supply in 2012. In addition, LNG remains a major foreign exchange revenue earner for the nation and LNG export in 2013 was valued at 59 billion ringgit.
Through upstream activities, major discoveries were made in 2013,with B14 and Tembakau as new fields offshore in Sarawak and Peninsular Malaysia respectively. The availability of national reserves has given Malaysia a distinct advantage to focus on the oil and gas industry, and fol-
lowing the new discoveries, Malaysia’s gas reserves are expected to last for,at least, another 40 years.
Further, natural gas has also been imported from West Natuna,Indonesia since 2002 and from the Malaysia–Thailand Joint Development Area (the MTJDA) since 2005. From 2014, the country has imported 2 million metric tons of LNG from Australia to meet rising domestic demand and to counter dwindling domestic discoveries. The electric grid has continued to be the main user (66 per cent) followed by other sectors (28 per
cent), and the remaining 6 per cent is exported to Singapore.
Malaysia is the largest LNG producer in a single location: the BintuluLNG complex, with a total production capacity of 23 million tons per year.
According to the Oil and Gas Journal, Malaysia held 83 tcf of proven natural gas reserves in January 2013 and was the third-largest natural gas reserves holder in the Asia-Pacific region. Most of the country’s natural gas reserves
are in its eastern areas, predominantly offshore Sarawak. As at January 2014, the Department of Statistics Malaysia recorded that LNG exports rose by 757 million ringgit or 13.9 per cent from 5.4 billion ringgit, due to the increase in both the average unit value (+9.2 per cent) and the export volume (+4.3 per cent).
The increased capacity at the Malaysia LNG plants and gas-processing plants has enabled the industry to meet the higher demand from traditional buyers. In addition, domestic demand for natural gas rose during the year due to increased use by the power generation sub-sector and also increased growth from domestic industrial users.The use of the Peninsular Gas Utilisation (the PGU) (the longest pipe-
line in Malaysia) from 1998 has encouraged the growth of the natural gas transmission infrastructure in Peninsular Malaysia and the nearby regions.
The pipelines are also linked with Singapore and Indonesia. The Trans-Thailand-Malaysia Gas Pipeline System, completed in 2007, provides further linkage to the MTJDA, which pipes gas directly to the Malaysian domestic pipelines system in Changlun, Kedah. The whole system provides a solid foundation for the formation of the proposed Trans–ASEAN
Gas Pipeline System (TAGP), a trans-national pipeline network linking major gas producers and consumers in Southeast Asia.
The completion of the LNG regasification terminal (RGT) in May 2013 contributed significantly towards enhanced gas supply and energy security in Peninsular Malaysia. LNG imports, coupled with higher domestic production in Peninsular Malaysia has resulted in an increased share of gas in Peninsular Malaysia’s electricity generation mix from 45 per cent in 2012 to more than 50 per cent since the LNG RGT commissioning. Moreover, the Pengerang Independent Deepwater Petroleum Terminal (the PIDPT), an oil refining facility in the Pengerang Integrated Petroleum Complex (PIPC) in southern Johor, Malaysia, will be able to handle the storage, blending and distribution of crude oil, gas and petroleum products. The construction of phase 1 of the PIDPT has already started. As at January 2013, two major catalytic projects have been committed to within the PIPC area. The project is moving on a steady course as reported in The Star, in early August 2014. Based on the current progress,Petronas has reported that the project is poised for its refinery start-up by
early 2019. The 5 billion ringgit PIDPT is a joint-venture between Dialog Group of Malaysia, Royal Vopak of Netherlands and Johor State Secretary Incorporated (SSI). The total storage capacity available at the PIDPT is planned to be 5 million cubic metres by the year 2020. It is planned that a total storage capacity of 5 million cubic metres will be available at the PIDPT by 2020.
According to Shamsul Azhar Abbas, President and Chief Executive Officer of Petronas, the LNG export facility, to be built on Canada’s west coast, will receive a final investment decision in late 2014, after Petronas won regulatory approval in December 2012 for its US$5.3 billion bid for Toronto-listed Progress. However, in December 2014, as reported in Bloomberg, Petronas had deferred a decision to build an LPG terminal in Canada as a result of the latest global investment setback from plunging oil prices.
Petronas, with its associates, is entrusted with upstream activities such as developing, exploring and utilising the resources within or outside the local markets, while further downstream activities such as retailing and sales management for the local market are entrusted to Gas Malaysia Sdn Bhd (GMSB) and Sabah Energy Corporation (SEC), the licensees author-ised by the Malaysian Energy Commission (the EC). Three major integrated petrochemical zones have been established and attracted foreigninvestment, mainly from the US (33 per cent of total foreign investments), Germany (22.8 per cent) and Japan (14.0 per cent), while Petronas was the main domestic investor. During the planning period, the annual investment target in the petrochemical industry has been set at 11.3 billion ringgit, and exports from this industry are expected to reach 27.7 billion ringgit
in 2015.
As reported in Petronas’s Annual Report 2013, gas is made available to small industries, commercial and residential customers in Peninsular Malaysia by Gas Malaysia Berhad (GMB), which owns and operates approximately 2,000km of distribution pipeline network. For industrial customers, the main consumers of natural gas are from the rubber products, food,beverage and tobacco sectors, which collectively consumed in total about 53 per cent of natural gas supplied by GMB. In addition, GMB also supplies LPG to 1,204 commercial sectors and 22,480 residential sectors.

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